Obama’s Homeowners Assistance Plan: What is it?

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Obama’s speech introducing his “Foreclosure Rescue Plan” was extremely vague. Almost every sentence contained contradiction, and inaccuracies,  “…rescuing families who’ve played by the rules and acted responsibly by refinancing loans for millions of families in traditional mortgages who are underwater or close to it, by modifying loans for families stuck in subprime mortgages they can’t afford as a result of skyrocketing interest rates…”

Obama blamed foreclosures for producing abandoned houses. He neglected to mention that mortgage bankers cause this problem. They abandoned houses, boarded them up, allowed weeds to grow, mosquitoes to breed, and gangs to occupy.

Why not simply enact law that force banks to take possession after foreclosure? Why not subject them to all the responsibilities of homeownership? Why not prohibit them from writing off abandoned houses as complete losses? This would certainly cut down on foreclosure and the need for the taxpayers, as required by Obama’s plan, to pay banker to restructure loans. Why don’t the banks rent the houses? They could rent them to the foreclosed owner.

Of course, the answers to these questions are that the mortgage banker lobby is as strong as ever. Obama’s speech sounded much like a mortgage bankers press release—”American dream,” “middle class,” “community roots,”—. By the way, only a third of Switzerland’s residents are homeowners; the rest rent.

Since the Swiss  have high property taxes, there is little incentive for house price appreciation and prices have remained steady. These taxes pay for infrastructure. Zurich is one of the most beautiful cities in the world.

Switzerland has a cultural, and linguistic diverse population with greater economic equality and a higher standard of living than the United States.

Recently the stock market fell on rumors that Treasury Secretary Geithner was considering nationalizing bad banks. Do it! Markets hate uncertainty. Some say that eventually it must be done (Reuters)

Nationalization does not have to be permanent. Essentially, we need to put the bad banks into Chapter 11. After they’re restructured, new management is installed, mortgage loans are marked down to their market value, they can resume operation in the private sector.

The mortgage bankers argue that restructuring loans violates contracts and that future lenders will require higher interest and greater down payments because of higher risk. We’re in this mess because the present bunch of lenders lacked risk assessment skills.

It’s hard to image a better case for voiding contracts because they violate public policy. Not only have these banker plunged the US economy into a deep recession; they have created a downward trade spiral that threatens to throw many in developing nations into poverty. The present economic conditions have eclipsed the threat of terrorism to national security.

Reducing mortgage principals to market would be a powerful stimulus. Homeowner could use some of this money to raise the real value of their homes by improvements including green technology. They could raise the value of the land by raising taxes and improving their infrastructure.

A land-value-tax tax is the ideal mechanism for accomplishing this goal. This tax exempts improvements on the land such as a home. It only taxes the value of the land for it proximity to schools, parks, police, fire, roads and other infrastructures.

Why should we send money off to market manipulators? No one can wave a magic wand and restore house prices. The myth of constant house price appreciation is gone, but we can build better houses and better communities. “This is your land. This is my land.”

Photo Credit: Flicker

Also See:

Can “Cram Downs” Reduce Foreclosures and Improve The Economy?

Madoff Greatest Ponzi Scheme? Real Estate Magnitudes Greater

Fannie and Freddie, The Rich Grew Richer: A Case for a National Mortgage Bank

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